Arnold Kling  

If Economists Designed Health Policy

Anti-Child Labor or Anti-Marke... Why Not Health Care Austerity?...

They would come up with something like this.

1. All Americans receive a voucher each year to purchase a standard plan from the private-plan provider of their choice.
2. Vouchers are individually risk-adjusted; those with higher expected healthcare costs, based on documented medical conditions, receive larger vouchers.
3. Participating insurance companies providing standard plans cannot deny coverage.
4. Each year a panel of doctors sets the coverages of the standard plan subject to a strict budget, namely that the total cost to the government of the vouchers cannot exceed 10 percent of GDP.

Organized by Larry Kotlikoff. Initial endorsers include Akerlof, Phelps, Schelling, Sharpe, and Vernon Smith, which gives you Nobel Laureates across the political spectrum. There is an option to add your endorsement, or a phony one. As of this writing, the list of endorsers includes an entry for Barack H. Obama, whose listed occupation is "President/community organizer." If I were listed as an endorser, it would also be suspicious. I'm not so hostile to the ideas, but I am not a petition-signer by nature.

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COMMENTS (14 to date)
Dave writes:

By defining a "standard plan", most of the benefits of private provision of health care are negated.

A lot of the drama over what is covered and what is not could be completely eliminated if we were willing ratchet up deductibles / co-payments. Regardless of the structure of health care reform a key feature upon which all economists should agree is that individuals should pay for a large percentage of every visit, test, and procedure out of pocket. The amount of that large percentage could vary based on ability to pay. The remainder of the percentage could be covered by either the government or private insurance depending on an individuals circumstances.

steve writes:

The biggest benefit to this plan is that it would get everyone into the same general plan. We would not face the problem of group interests dominating political decisions on spending.

Standard plans is also key. I would prefer a menu of standard plans with people being able to use their own money to upgrade. Health care plans are complicated and most people dont know what is in them, certainly no one in my corporation knows what is in ours. With standard plans people would have a better idea what they are getting. Ideally these plans are very publicly detailed with line by line comparisons in an exchange of some sort.


Shangwen writes:

I think that is a pretty good start, even though it lacks my pet peeve of eliminating or at least enfeebling government-sponsored labor monopolies. Still, I doubt most people could get past point #2 of the basic principles ("Healthcare should be privately provided with people free to choose their doctors and hospitals") without decrying it as a hate-fest.

As I sit here in Canada, world capital of smugness, I have to say you Americans are fortunate that there is at least a real and substantive debate going on about this problem. Whatever the next outcome is, and despite the inanity of many federal policy choices, it is a certainty that no government has ever been so well-advised on health policy options as successive American governments. Something to feel both inspired and depressed by, perhaps.

mark writes:

Don't understand why 2 is in this list. It does not strike me as something economics requires. If 2 were required, you could simply replace 1 & 2 with a government payment of X% of everyone's medical bills. 1 + 2 amount to the same thing.

Missing from this is something very important: the cheapest form of insurance is self insurance. Economics should encourage that. There should be rewards for healthy people. Like converting 75% of it to cash and keeping it. Or there should be less vouchers for self-inflicted medical needs, like sports injuries, substance abuse, obesity driven illness, etc.

John V writes:

Some comments and a question:

#2 seems like difficult to do yet sounds nice in theory.

#4 looks like technocratic cronyism waiting to happen.


Couldn't you just leave #4 out of it? What would happen if we simply provided vouchers and no-denial policies and left the rest alone?

Various writes:'ve got it. I would also suggest you add something to the effect that either: a). medical expenses paid for by individuals are 100% tax deductible, or b). individual contributions to health plans are 0% deductible. This would level the playing field and allow individuals to self-insure for a larger piece of expenditures. The "insurance" component for folks who are not elderly or poor should really be reserved for what insurance is supposed to be for, mainly covering large/catastrophic losses.

Jack writes:

"All Americans receive a voucher each year to purchase a standard plan from the private-plan provider of their choice."

Why a plan? If we're giving all Americans vouchers, why not give them each a health care savings account and have the voucher go directly to it?

Tracy W writes:

I would be interested to see what a bunch of non-American health economists would come up with.

Thomas DeMeo writes:

There is almost no market pressure on costs. Cost control is contained in item #4, and this is a central planning mechanism.

CC writes:

Why the debate is so focused on the demand side? It seems to me that in the US the market for health care providers has incredible high barriers to entry. Typically, the best and brightest doctors in the world cannot hope to come and work in the US in the same way that electrical engineers or software developers can. During the 90's in Argentina, as a result of the deregulation policies pushed by the Washington Consensus, the govt busted the medical associations and biochemist associations among others and the result was a big reduction in their pricing power without much decrease in quality. I know a couple of examples first hand and others because at that time I was working for the antitrust agency. E.g. around that time my uncle's (surgeon) team, , was replaced by a complete team from Peru or Bolivia (I can't remember well) all apparently first rate doctors.

Floccina writes:

I agree with CC. Why so little discussion of the supply side? Is it considered a lost cause because licensing is done at that state level?

People without insurance could be encouraged to use operations like this:

John Goodman writes:

Larry Kotlikoff actually says the idea originally come from me. So let me inject a note of caution. If the risk-rating is done correctly, you don't need to have a requirement that insurers must accept everyone. To the contrary, you want to allow rejection - or, what is the same thing -- allow insurers to charge prices on top of the voucher to reflect the insurer's evaluation of the risk. Otherwise you have no feedback on whether you got the prices right. And if they aren't right, there will be health care consequences.

John Goodman writes:

Also, if the risk-rating is correct, then why do we need the doctors to decide on coverage as in 4? Once you get the subsidy right, you can let the market determine coverage and it need not be the same for everyone. Different sexes, different ages, different health conditions, etc., have different insurance needs.

Thanks everyone for considering this plan that's posted at John Goodman, my brilliant and great friend, did, indeed, suggest individual risk adjustment as a way of overcoming adverse selection. Medicare Part C using such software already. So the technology is there and with electronic medical records it will get better. But it won't be perfect, so forcing insurers to accept anyone who wants to join is an extra guarantee against cherry picking. The idea here is to make the basic plan like apples -- plenty of sellers competing to sell a homogenous product. Letting insurers offer different coverage will make it too complicated for people to choose. Nor do we want one plan to provide less coverage than another since we, as society, are paying, via our taxes, to get everyone well covered. Insurers will have limited ability to set co-pays and deductibles. Indeed, I'd make the co-pays and deductibles the same. I would, however, let insurers pay people to improve their health, e.g., lower their weight. Please endorse the plan and forward it to your email list.

best, Larry

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